Yellow Tail Maker Plans $100 Wine, Spritzers in Profit Hunt

Casella Wines Pty., the maker of Yellow Tail wine, is developing a label costing $100 a bottle as well as packaged spritzers as it seeks new markets amid narrowing industry profit margins.

The winemaker, whose signature product sells for about $7.50 a bottle in U.S. stores and inspired the growth of low-priced, easy-drinking Australian “critter labels,” will charge about 13 times as much for the Casella 1919 brand when it’s released later this year, Managing Director John Casella said in an interview in Sydney yesterday.

Australian winemakers are looking for new ways to lift earnings after being squeezed by a global glut of wine grapes, the strength of the local currency, and competition from Chile, Argentina and South Africa. Margins in the local industry fell from more than 10 percent in 2008 to an average of 2.2 percent between 2009 and 2011 and an aggregate loss depressed it to a negative 5.9 percent last year, according to an August survey by the Winemakers Federation of Australia.

The Bondi Rd.-branded spritzers, which will be bottled at a brewery built with a loan from Coca-Cola Amatil Ltd. (CCL), are “about making the resource we have more efficient,” Casella said. “We’ve got a sales and marketing team which has only got one major product at this point.”

Margins on the mixed drinks will be higher, and they’ll make use of cheaper vintages that would otherwise be mixed into lower-value wine blends, he said.

“They help us reach the consumer who might be drinking ready-to-drink” bottled cocktails, he said. “They might jump to this and then jump to wine products.”

Bottled Sangria

Casella, which has produced a billion bottles of wine since it introduced Yellow Tail in 2001, is also selling bottled sangria under the brand to target the U.S. hispanic market. It also makes a beer sold under the Arvo label at its brewery in the New South Wales state town of Griffith.

The convertible loan from Coca-Cola Amatil, Australia’s largest listed beverages company, will convert into a 50 percent stake in the brewery on Dec. 16, Casella said.

After peaking at A$2.99 billion ($2.8 billion) in 2007, Australia’s wine exports fell 39 percent to a 12-year low in the year ended June, according to Wine Australia, a government-backed industry body. Chile became the biggest exporter outside of Europe during 2012, knocking Australia from a position it had held since 2000.

Stronger Focus

The company trails closely-held Casella in the U.S. market, and announced a A$160 million writedown to destroy and discount old and out-of-date stock in the country July 15.

Chief Executive David Dearie left the company Sept. 23 as it “needs a leader with a stronger operational focus”, Chairman Paul Rayner said in a statement at the time. Chief Financial Officer Mark Fleming quit about six weeks before the writedown announcement.

Casella has seen stronger performance in the U.S., with sales volumes picking up 4 percent to 5 percent in recent months after a 0.2 percent decline last year, Casella said.

Disposable Income

The recovery was due to “the economy picking up and the promotional work we’ve been doing”, he said. The winemaker hasn’t seen any impact from discussions in Washington over the country’s debt limit and didn’t see any effect from a similar episode in 2011, he said.

“If it was possible to get good margin from this business, very astute winemakers wouldn’t be saying otherwise,” Phil Reedman, an independent wine consultant and former buyer for the U.K.’s biggest grocer Tesco Plc, said by phone from Adelaide. “The consumer in the U.K doesn’t have the disposable income that they once had. Wine is a discretionary purchase, and they’re looking to buy wine they can afford.”

The $100 1919 range will include a Shiraz and Cabernet Sauvignon brand using grapes from South Australia’s Barossa Valley, Wrattonbully and Coonawarra regions. It’s also looking at premium ranges costing around $15, $25 and $40 a bottle, according to Casella.